FSA amends firms' incidental business guidelines

FSA amends firms' incidental business guidelines


Regulated professional firms could be providing their clients with less protection than their non-regulated counterparts when conducting business that falls outside of regulatory remit. This has prompted an FSA consultation which proposes to amend the guidelines under which regulated firms conduct non-regulated business.

The FSA [in consultation paper CP12/11] is proposing to remove a rule which “allows authorised professional firms under five designated professional bodies to carry out non-mainstream regulated activity (NMRA) without being subject to rules from those bodies.”

Regulated companies who also undertake some non-regulated business can only do so under NMRA, whereas non-regulated firms are “…exclusively regulated by their designated professional body.”

NMRA was created because, “…a firm cannot be both authorised and exempt. Some professional firms were authorised in order to undertake mainstream regulated activity, but also wished to do some incidental business. NMRA allowed them to do this incidental business on a level playing field with an exempt firm, (i.e. without it being subject to the rules for mainstream activity).

“The rationale was that the designated professional bodies would regulate NMRA to the same extent that they regulate the financial services activities of exempt professional firms.”

However, problems arose when the FSA became aware that regulated firms “…are not in fact subject to rules for NMRA under those bodies. The majority of FSA rules are disapplied for NMRA.”

This means that an FSA-regulated firm could be giving consumers less protection then a non-regulated firm when conducting non-regulated business as there are very few guidelines that govern this kind of activity.

The FSA concluded that “…If this gap is allowed to persist, consumers will lack protection for business conducted as NMRA. In particular, they are not subject to complaints handling and redress requirements from which clients of exempt professional firms benefit.”

Any changes to these particular rules will not come into force until April 2013, however the FSA proposes that “...the gap could be filled either by us making rules or by each of the five affected designated professional bodies doing so. The present consultation is aimed at applying our rules to address the possible consumer detriment.”

Feedback to this consultation should reach the FSA by 6th August 2012.

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